The Federal Reserve posted its largest rate hike in more than a quarter of a century this week and even the Swiss National Bank surprised markets with an aggressive rate hike.
As a result, the Bank of Japan remains the only major central bank in the developed world that still clings to the mantra inflation is transitory.
Here’s a look at where policymakers are in the race to curb red-hot inflation.
1) United States
The Federal Reserve jumped to the top spot on June 15, increasing its target federal funds rate by three-quarters of a percentage point to a range of 1.5 to 1.75 percent.
It traded days after data showed an annual inflation rate of 8.6 percent in the US, spooking the market over potentially even more aggressive reactions in the coming months.
The Fed is also reducing its $9 trillion inventory of assets accumulated during the pandemic.
2) New Zealand
The Reserve Bank of New Zealand raised its official cash interest rate by 50 basis points (bps) to 2 percent on May 25, a level not seen since 2016. That was the fifth consecutive rate hike.
It predicted that rates will double to 4 percent in the next year and remain there until 2024. Inflation in New Zealand hit a three-decade high of 6.9 percent in the first quarter, against a target of 1-3 percent.
The Bank of Canada raised interest rates by 50 bps to 1.5 percent for the second time in a row on June 1, and said it would “take stronger action” if necessary.
With inflation at 6.8 percent in April, Governor Tiff Macklem is not ruling out an increase of 75 basis points or more and says interest rates could rise above the neutral margin of 2 to 3 percent for a period of time.
BoC Deputy Governor Paul Beaudry warned of “galloping” inflation and the market price rose 50bps in a row in July for the third time in a row.
4) Great Britain
The Bank of England (BoE) raised interest rates by 25 basis points on Thursday and pledged to act “firmly” to eradicate the dangers of UK inflation above 11%.
The UK benchmark rate is now at its highest point since January 2009. The BoE has now raised borrowing costs five times since December.
Norway’s Norges Bank was the first major developed economy to begin an interest rate hike cycle last year and has raised interest rates three times since September. It is expected to raise its 0.75 percent rate again on June 23 and plans seven more steps by the end of 2023.
With the economy recovering and inflation at a 20-year high of 5.1 percent, the Reserve Bank of Australia (RBA) raised interest rates by a surprising 50 bps on June 6. It was the RBA’s second straight move after months of insisting that tightening was a long way off.
The money market price will rise another 50 bps in July.
Another latecomer to the inflation battle, Sweden’s Riksbank, raised interest rates to 0.25 percent in April in a move of a quarter point. With an inflation rate of 6.4 percent compared to the target of 2 percent, the Riksbank can now opt for larger steps.
Although the Riksbank said in February that interest rates would not rise until 2024, the Riksbank expects to raise two or three more times this year.
8) Euro zone
Now firmly in the aggressive camp and facing record inflation, the European Central Bank (ECB) said on June 9 that it would end bond buying that month on July 1, for the first time since 2011, and again by 25. basis points. in Sept.
But without details on a tool to prevent borrowing costs for southern European countries from rising too much above Germany’s, markets will test the ECB’s resolve.
The bank now plans to accelerate work on a potential new tool to stem so-called bond market fragmentation and channel the proceeds of pandemic-era bond maturity into stressed markets.
On June 16, the Swiss National Bank (SNB) unexpectedly raised its interest rate from -0.75 percent, the world’s lowest, by 50 bps, sending the franc soaring.
The franc’s recent weakness has helped Swiss inflation climb to a 14-year high, and SNB Governor Thomas Jordan said he no longer sees the franc as highly valued. That has opened the door for betting on more rate hikes; a 100 bps move is now priced for September.
That leaves the Bank of Japan (BoJ) as the sentry.
On Friday, it maintained ultra-low interest rates and pledged to defend its cap on bond yields by buying unlimited bonds. It holds 10-year rates in a range of 0 percent to 0.25 percent.
BoJ boss Haruhiko Kuroda stressed a commitment to maintain the stimulus measures and warned of risks to the economy from tighter policies.
In a nod to the yen’s weakness, Kuroda called its rapid decline to 24-year lows “undesirable” as it heightened uncertainty.
The BoJ could come under political pressure, however, as inflation could exceed the 2 percent target for the second straight month and elections are in the pipeline in July. Hedge funds, meanwhile, are betting they can’t sustain massive bond buys forever.